Many credit card agreements contain an arbitration clause that lets either side move a dispute out of court and into private arbitration. If a bank or debt buyer sues you in California, that credit card arbitration clause can become a tool in your defense. Whether it helps depends on the wording of your agreement, who is suing, and how quickly you act.
If you have been served with a credit card lawsuit and want your agreement reviewed, call (415) 754-0115 to schedule your free consultation, or reach us through the contact page.
What a credit card arbitration clause says
The clause is usually buried in the cardholder agreement under a heading such as "Arbitration" or "Resolution of Disputes." While wording varies, most share a few features:
- Either party may elect arbitration. The card issuer can choose to sue in court, and you may then demand that the claim be arbitrated instead.
- A named provider. Many clauses name the American Arbitration Association or JAMS, whose consumer rules govern the process.
- A small claims exception. Many agreements let either side stay in small claims court rather than arbitrate.
- A class action waiver. You agree to resolve disputes individually.
- How arbitration costs are allocated. The clause and the provider's consumer rules spell out which side is responsible for the provider's charges.
Not every agreement has one
Some issuers have removed arbitration clauses, and some cardholders opted out when the account was opened. The only way to know is to read the version of the agreement that applied to your account.
Card issuers also revise their terms from time to time, often by mailing a change-in-terms notice. The clause that matters is usually the one in effect when the dispute arose, so older statements and notices you kept can be useful evidence. If you have them, set them aside before you talk to anyone about the case.
How electing arbitration works after you are sued
In California, a lawsuit on a credit card debt starts with a summons and complaint, and you generally have 30 days after personal service to respond. If the agreement allows it, the usual steps are:
- Obtain the agreement. Request the cardholder agreement from the plaintiff if it was not attached to the complaint.
- Elect arbitration in writing. Send the plaintiff a demand that the claim be arbitrated, and file a claim with the named provider if the clause requires it.
- Ask the court to step aside. If the plaintiff will not agree, a petition to compel arbitration asks the court to send the dispute to arbitration and pause the lawsuit.
Timing can waive the right
Arbitration rights can be lost if you litigate in court for a long time before raising them, and recent court decisions have made it easier to find that a party waived the right through delay. Raising arbitration early, in your first response or soon after, helps avoid an argument that you gave the right up.
California's payment deadline for businesses
California Code of Civil Procedure section 1281.97 addresses consumer arbitrations in which the business drafted the clause. If the business does not pay the amounts the provider requires within the statutory window, generally 30 days after they are due, it is treated as being in material breach of the arbitration agreement. The consumer can then choose to return the case to court or proceed in arbitration with additional remedies. An attorney can explain how this rule may apply to your case.
Debt buyers and the arbitration clause
When the plaintiff is a debt buyer rather than the original bank, two questions become important. First, can it produce the agreement that governed your account during the relevant period? Second, can it show that the arbitration rights passed to it along with the debt? California's Fair Debt Buying Practices Act separately requires debt buyers to have certain documentation about the debt before they sue, which you can read about in our guide to making a collector prove the debt.
Is arbitration a good idea for you?
Arbitration is not automatically better than court. It is one option among several, and the trade-offs are real:
- Possible advantages: the plaintiff must still prove its claim before a neutral arbitrator, the provider's consumer rules apply, and some plaintiffs reconsider whether pursuing the account in arbitration is worthwhile.
- Possible drawbacks: an arbitration award can be confirmed as a court judgment and enforced through garnishment or levies, and the grounds for challenging an award are very limited.
For many people, the clause is most useful as part of a larger strategy that also includes a timely answer and, where it makes sense, negotiation. Our article on answering a debt collection lawsuit in California covers the court side, and negotiating with creditors covers settlement.
The Somal Law Firm is the boutique Pleasanton practice of attorney Bob Somal, and it focuses on debt settlement, creditor negotiations and bankruptcy for individuals and small businesses in the Tri-Valley, Alameda County and Contra Costa County. Bob can review your cardholder agreement, the complaint and your overall debts, then explain how arbitration, negotiation or bankruptcy might fit.
Frequently asked questions
Can I force a credit card company into arbitration after it sues me?
If your cardholder agreement contains an arbitration clause that lets either party elect arbitration, you can generally demand it. If the plaintiff refuses, a court can be asked to compel arbitration based on the agreement.
Does arbitration erase the debt?
No. Arbitration changes where the claim is decided, not whether you owe it. The plaintiff still has to prove the debt, and an arbitrator can rule in its favor.
What if I cannot find my cardholder agreement?
The plaintiff should be able to provide it. Ask for the version that applied when the account was open and in default, since issuers update their terms over time.
Can I still settle if I elect arbitration?
Yes. Settlement discussions can continue at any stage, whether the case is in court or in arbitration. Any agreement should be in writing and should end the arbitration and the lawsuit.
When you contact us, we will review your agreement and court papers, confirm your deadlines and explain each path in plain language. Call (415) 754-0115 to schedule your free consultation, or use our contact page as a second option.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.